WASHINGTON - A growing group of Federal Reserve policymakers felt in March that interest rate hikes might be needed to counter inflation that continued to exceed the central bank’s 2 per cent target, particularly given the inflationary impact of the US-Israeli war with Iran, according to the minutes of their March 17-18 meeting.

“Some participants judged that there was a strong case for a two-sided description of the (Federal Open Market) Committee’s future interest rate decisions in the post-meeting statement, reflecting the possibility that upwards adjustments to the target range for the federal funds rate could be appropriate if inflation were to remain at above-target levels,” the minutes said.

At the January meeting a smaller group of “several” officials were willing to open the door to possible rate hikes, but by March and the outbreak of the war “many participants pointed to the risk of inflation remaining elevated for longer than expected amid a persistent increase in oil prices.”

Stocks appeared unfazed by the minutes’ hawkish tone, with major indexes higher on hopes of a lasting settlement of the Iran war.

Interest rate futures traders slightly pared earlier bets on the Fed easing later this year, though bets on any Fed rate hike remained negligible.

The Fed in March held its benchmark overnight interest rate steady in the 3.5 per cent to 3.75 per cent range while nodding to the fresh uncertainty the war had introduced to the economic outlook.

Despite the inflation risks, however, “many participants” still saw rate cuts as part of their baseline outlook, with “most participants” judging that an extended conflict in the Middle East would do enough damage to economic growth that even more cuts would be warranted.

“Mo...